Western India Regional Council of

The Institute of Chartered Accountants of India

(Set up by an Act of Parliament)

E-Publication on

Overview of Data Analytics

for Finance Professionals

Create Competence with Ethics

Achieve Governance through Innovation
© WESTERN INDIA REGIONAL COUNCIL OF
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

Published by
CA. Lalit Bajaj, Chairman, WIRC, Western India Regional Council of
The Institute of Chartered Accountants of India,
ICAI Tower, Plot No. C-40, G Block, Opp. MCA Ground,
Next to Standard Chartered Bank, Bandra-Kurla Complex,
Bandra (East), Mumbai-400 051
Tel.: 022-336 71400 / 336 71500 • E-mail: wirc@icai.in • Web.: www.wirc-icai.org

Disclaimer
Opinions expressed in this book are those of the Contributors. Western India Regional Council of The Institute
of Chartered Accountants of India, does not necessarily concur with the same.
While every care is taken to ensure the accuracy of the contents in this compilation, neither contributors nor
Western India Regional Council of The Institute of Chartered Accountants of India is liable for any inadvertent
errors or any action taken on the basis of this book.

ii Western India Regional Council of The Institute of Chartered Accountants of India

Foreword
The year 2020 has seen a huge leap forward in adoption of digitalisation amongst
professionals. All professionals, whether in industry or in practice, understand that as
technology plays a bigger role in the day to day aspects of a business, we have to move with
the times as technology and accountancy are slowly merging.
Words like blockchain, artificial intelligence, machine learning, and data analysis have become
common amongst Chartered Accountants. While all of these buzzwords and their related
concepts are important, none seems to be quite as important as data analytics.
Data Analytics is becoming commonplace in businesses as companies try to sift through huge
amounts of information because interpreting data effectively can improve business intelligence
and decision making significantly.
As Chartered Accountants we are trained to observe, analyse and even predict trends.
Understanding the importance of future trends, this year WIRC has focused intensively on
topics which impact the profession and generated publications which put our members and
students on the path of future growth.
This publication namely, ‘Overview of Data Analytics for Finance Professionals’ is one such
study which will help members and students become aware of big data analytics and its
impact on the accounting profession, and every industry in general.
It will give you a closer look at data analytics and what it really means for us in this field.
Accountants can use data analysis when reviewing financial information to ensure the company
is running well, meeting goals, and maintaining or improving performance. This knowledge is
essential to both a business’s sustainability and survival.
For Members in practice, data analytics can be used to improve the client experience helping
to retain and bring on new clients.
The importance of big data is only going to grow in the future. Learning about how data is
used in accounting now will put you in a great position to become an asset in any role you
play in the accounting profession.
I thank CA. Yashwant Kasar, RCM, for his dedication toward ensuring the publishing of this
study as well as the team of contributors comprising CA. Anant Govande, CA. Alok Jajodia,
CA. Dinesh Kumar Tejwani, CA. Mitesh Katira and CA. Shirish Padey.
I am confident the ‘Overview of Data Analytics for Finance Professionals’ publication will prove
to be of tremendous benefit to all members and I am sure these insights will help everybody
get a better grasp of this important topic of data analytics.
I congratulate all the contributors and members for this publication.

CA. Lalit Bajaj

Chairman, WIRC

Western India Regional Council of The Institute of Chartered Accountants of India iii
Preface
As technology continues to evolve, it promotes changes to business models and in
an increasingly data-driven world, Chartered Accountants need to be able to adapt
to these technological changes.
Across the world and increasingly in India, Chartered Accountants find themselves
requiring skills in data analytics as its use becomes widespread. Today, internal and
external auditors use data analytics for continuous auditing, financial planning and to
discover new consumer and market trends to drive company strategy.
In order to bring this subject to the forefront, WIRC is publishing this insightful book
on ‘Overview of Data Analytics for Finance Professionals’. It will highlight the use of
analytics in auditing, by focusing on integrating analytics into the audit process and
on defining how analytics can be used to enhance audit quality.
This book also highlights future trends, insights into usage of tools for data analysis,
commonly used statistical models for practical data analytics and usage of data
analytics.
I thank WIRC Chairman CA Lalit Bajaj for his encouragement and belief in the
importance of practical publications for the education of our members. I would like
to thank and appreciate the depth of work put forward by our contributors namely
CA Anant Govande, CA Alok Jajodia, CA Dinesh Kumar Tejwani and CA Mitesh Katira
for their commendable efforts to bring out this book within a short span of time.
I also specially thank CA Shirish Padey for devoting time and reviewing the book with
some very useful inputs.
I am sure that this book will be an asset to all the members looking to upgrade their
skill-sets and ensuring they transform into future ready professionals.

CA Yashwant Kasar
RCM, WIRC

iv Western India Regional Council of The Institute of Chartered Accountants of India

 List of Contributors
CA Anant Govande
CA Alok Jajodia
CA Dinesh Kumar Tejwani
CA Mitesh Katira

Reviewer
CA Shirish Padey

Western India Regional Council of The Institute of Chartered Accountants of India v

 WESTERN INDIA REGIONAL COUNCIL OF
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
2020-21

Chairman
CA. Lalit Bajaj

Vice-Chairman
CA. Vishal Doshi

Secretary
CA. Murtuza Kachwala

Treasurer
CA. Anand Jakhotiya

Members
CA. Abhijit Kelkar CA. Arpit Kabra
CA. Arun Anandagiri CA. Balkishan Agarwal
CA. Chintan Patel CA. Drushti Desai
CA. Hitesh Pomal CA. Jayesh Kala
CA. Kamlesh Saboo CA. Manish Gadia
CA. Priti Savla CA. Shilpa Shinagare
CA. Sushrut Chitale CA. Rakesh Alshi
CA. Umesh Sharma CA. Vikash Jain
CA. Vimal Agrawal CA. Yashwant Kasar

Ex-Officio Members
CA. Nihar Jambusaria, Vice-President, ICAI
CA. Prafulla Chhajed, Past President, ICAI
CA. Aniket Talati CA. Anil Bhandari
CA. Chandrashekhar Chitale CA. Dheeraj Khandelwal
CA. Durgesh Kabra CA. Jay Chhaira
CA. Nandkishore Hegde CA. Shriniwas Joshi
CA. Tarun Ghia

vi Western India Regional Council of The Institute of Chartered Accountants of India

 INDEX
Sr. Pg.
Particulars
No. No.

1. Why Data Analytics 1

Some Important Terms 2

Types of Data Analytics 5

Users of Data Analytics 7

Data Analytics - Advantages 8

Data Analytics - Challenges 8

2. Data Analytics in Audit 9

Changing audit scenario- Requirement for Fraud reporting 9

Issues/challenges with the usage of Data Analytics in audit 13

3. Data Analytics in Other Finance Functions 15

Benchmarking 15

Management Information 16

Investor and Lender information 17

Tax Function 17

Financial Statement Analytics 18

4. Tools for Data Analysis 20

Data Smoothing/Transformation Tools 20

Data Analysis Tools 21

Visualisation tools 24

Western India Regional Council of The Institute of Chartered Accountants of India vii
 Sr. Pg.
Particulars
No. No.

5. Data Analytics: Current & Future Technology Trends 27

Algorithms 28

Artificial Intelligence (AI) and Machine Learning (ML) 29

Internet of Things (IoT) 31

Big Data Analytics with data mining 32

Blockchain 33

Future of Data Analytics using new-age technologies 34

6. Commonly used Statistical Models for Practical Data Analytics 37

Mean 38

Median 38

Mode 39

Standard Deviation 40

Correlation 41

Regression 43

7. Data Analytics Usage 44

Professional Firms 44

Finance professionals in the Industry 45

Finally A Word of Caution 47

viii Western India Regional Council of The Institute of Chartered Accountants of India
 Overview of Data Analytics for Finance Professionals 4 
 
Why data analytics  Why Data Analytics

 
In today’s information age, data is everywhere and ever-increasing. We are leaving
In today's information age, data is everywhere and ever‐increasing. We 
digital footprints when we use the internet right from desktops, laptops, mobiles to
are leaving digital footprints when we use the internet right from 
wristbands!!

desktops, laptops, mobiles to wristbands!! 
Traditionally businesses have been capturing data from internal accounting, and
operations like CRM, payroll, inventory. But in the digital age external data like
website traffic, social media feeds etc. have become equally critical.
Traditionally businesses have been capturing data from internal 
accounting, and operations like CRM, payroll, inventory. But in the digital 
Increased data is not just limited to businesses; all government offices, defence
offices, scientific research organisations and other arms of the modern society are
age external data like website traffic, social media feeds etc. have 
also looking at ever-increasing data.
become equally critical. 
Data analytics can be defined as a science that analyses raw data to draw conclusions
about the information contained therein.
Increased data is not just limited to businesses; all government offices, 
defence offices, scientific research organisations and other arms of the 
modern society are also looking at ever‐increasing data. 
Western India Regional Council of The Institute of Chartered Accountants of India 1

Data analytics can be defined as a science that analyses raw data to draw 
Overview of Data Analytics for Finance Professionals

For a chartered accountant, data analytics is a relatively new concept. To put it simply,
data analytics enables an auditor to work on, assess, conclude, manipulate 100% of
data, rather than just a sample of the population. However, the use is not just limited
to audit and assurance, as we see in the following chapters.

Some Important Terms

A. Database (DB): Data stored in a database is in the form of tables, consisting
of rows and columns.

B. Management Information Systems (MIS): Management Information Systems

are essentially Reports, designed to address standard and repetitive information
required periodically by management for decision making. MIS typically execute
predefined queries on the database.

C. Data Warehouse (DW): Data stored in a database in the form of tables,

may then be moved to a Staging Area for transformation, and then to a Data
Warehouse. Data stored in a Data Warehouse is in the form of virtual multi-
dimensional cubes (not tables). Typically, data in a Data Warehouse is never
purged, as the more the data, the better will be the understanding of hidden
trends, etc.

D. Artificial Intelligence (AI): Artificial intelligence is a technology which enables

a machine to simulate human behaviour. It is based on the experience of the
tool, rather than being clearly programmed. So, unlike MIS, AI is expected to
give answers to random questions on data.

E. Machine Learning (ML): ML is also a subset of AI. Unlike BI, ML may be used
for non-business purposes.

F. Deep learning (DL): DL is a subset of ML, which imitates the working of the
human brain without human supervision. It can process data and create patterns
similar to the human brain and use them in decision making. It is also known as
neural learning, used for detecting objects, recognizing speech and translating
language.

2 Western India Regional Council of The Institute of Chartered Accountants of India

 recognizing speech and translating language. 
Overview of Data Analytics for Finance Professionals

 
G. Business Intelligence (BI): BI is essentially a subset of AI. BI are the tools and
Business Intelligence (BI): BI is essentially a subset of AI. BI are the tools
G. methodologies that make use of large business data to make intelligent business
decisions. BI uses past and present data to make better decisions for current
and methodologies that make use of large business data to make 
business operations.
H. intelligent business decisions. BI uses past and present data to make 
Business Analytics (BA): Business analytics uses past and present data to
better decisions for current business operations.  
predict future trends. BA tools are used to help make strategic decisions
regarding new market opportunities, improving customer relationships etc.
Unlike BI which takes a thorough look at past, present data, BA engages human
  intelligence and individual perspective to arrive at conclusions about the next
plan of action. BA has to do with viewpoints and foresight, and that can be very
Business Analytics (BA): Business analytics uses past and present data to
H. subjective.
I. predict future trends.  BA tools are used to help make strategic decisions
Advanced Analytics: This data science uses scientific methods and processes
regarding new market opportunities, improving customer relationships 
to extract insights and knowledge from structured and unstructured data,
generally large data. Advanced Analytics is the autonomous or semi-autonomous
etc. Unlike BI which takes a thorough look at past, present data, BA 
examination of data or content using sophisticated techniques and tools,
typically beyond BI and BA, to discover deeper insights, make predictions, or
engages human intelligence and individual perspective to arrive at 
generate recommendations.

 
Example: COMET Neowise was discovered by analysing data acquired by a space
telescope.

Western India Regional Council of The Institute of Chartered Accountants of India 3

 
Overview of Data Analytics for Finance Professionals
J. Big Data 
J. Big Data

 
The term big data is frequently used while describing data analytics. So, 
The term big data is frequently used while describing data analytics. So, what is
what is big data? 
big data?
Big data deals with all kinds of data:
Big data deals with all kinds of data: 
● Structured data: data organised in a formatted database

  ● Unstructured data: data does not have a predefined data model. Examples:
documents, images, videos, sensor data, audio, emails etc.

● Semi-structured data: mainly unorganised, but has some associated

information like metadata tagging
Although big data doesn’t equate to any specific volume of data, big data
deployments often involve terabytes (TB), petabytes (PB) and even exabytes (EB)
of data captured over time.
Big data analytics can lead to positive business-related outcomes like:

● New revenue opportunities

● More effective marketing

● Better customer service

4 Western India Regional Council of The Institute of Chartered Accountants of India

 Overview of Data Analytics for Finance Professionals

● Improved operational efficiency 9 

● Competitive advantages over rivals

Types of Data Analytics

 
a. Descriptive  Analytics 
a. Descriptive Analytics
This is the most basic type of analytics and deals with numbers. It 
This is the most basic type of analytics and deals with numbers. It provides
‘what happened’ by quantitatively analysing data using statistical methods e.g.
provides ‘what happened’ by quantitatively analysing data using 
sum, mean, mode, percentage, frequency etc. Various revenue reports, KPI
statistical methods e.g. sum, mean, mode, percentage, frequency etc.  
Dashboards are some of the common examples
Various revenue reports, KPI Dashboards are some of the common 
b. Diagnostic Analytics
examples  Diagnostics tend to provide an answer as to ‘why it happened’. While a
revenue report may show the actual figure of decline in sales over periods, the
b. Diagnostic Analytics 
diagnostic analytics will look into the patterns and deviations to seek root cause
analysis and provide reasons for the decline in the sales. Diagnostics involve co-
Diagnostics tend to provide an answer as to 'why it happened'.  While a 
relating two different datasets.
revenue report may show the actual figure of decline in sales over 
periods, the diagnostic analytics will look into the patterns and deviations 
to seek root cause analysis and provide reasons for the decline in the 
Western India Regional Council of The Institute of Chartered Accountants of India 5
sales.  Diagnostics involve co‐relating two different datasets. 
Overview of Data Analytics for Finance Professionals

c. Predictive Analytics
Predictive analytics is concerned with the future and comes up with answers as
to ‘what is likely to happen’. Businesses use this to predict the demand for their
products.
While description analysis shows sales data over quarters/years, diagnostic
analytics provide the cause for decline/increase. Predictive analytics will co-relate
these data to external data like demographics to guess future sales.

d. Prescriptive Analytics
This is the most advanced form of analytics and comes up with
recommendations as to ‘what action is to be taken’. This requires huge
computing power as it tries to work out multiple scenarios, predict outcomes
for each such scenario and then recommend the best one. Artificial Intelligence
and Machine Learning use prescriptive analytics.
Examples

Description Analytics Monthly State-wise sales during 2020-21 show sales

down
24% during April-June,
12% during July-Sept
2% during Oct-Dec
Diagnostic Analytics Lockdown caused by COVID-19 and consequent closure
of retail outlets caused the decline
Predictive Analytics With lockdown relaxed and normal activity rebounding,
sales during Quarter IV will be 5% higher than the same
during LY
Prescriptive Analytics Shifting to a hybrid model of instore and online sale
may result in an increase of 16% during 2021-22

e. Exploratory and Confirmatory Data Analytics

In Exploratory data analytics, no clear hypothesis is stated before analysing
the data, and the data is searched for models that describe the data well.
Exploratory data analytics starts by framing questions about what to do with
data and then finding out the best way to manipulate data to find the answers.
This involves understanding data structure, identifying missing or erroneous data,
establishing a margin of error and figuring out hypotheses.

6 Western India Regional Council of The Institute of Chartered Accountants of India

 Overview of Data Analytics for Finance Professionals

Confirmatory data analytics, on the other hand, sets out to test the stated hypothesis
using statistical tools and conclude your findings.

Users of Data Analytics

a. Businesses: Businesses are using data analytics to improve operations, and
strategize the future. Most modern e-commerce businesses are thriving only
because of advance usage of data analytics.
Example: Netflix uses viewership data to recommend the shows you are likely
to be interested in. More than that, it can use these large data to create its own
content and direct it to the target audience, virtually guaranteeing success
b. Governments: Governments are using data analytics to predict major problems
and ta ke pre-emptive action before they turn into crises. The areas where they
are being put to use are natural calamities, defence, internal security, health care
etc.
Example: The Government of Indonesia uses sensors and public complaints to
predict flood-prone areas and expedite response.
c. Various scientific disciplines: Use of data analytics in scientific research cannot
be overemphasised. Few examples:

● Use of satellite imagery to analyse and predict climate models

environmental changes

● Use of patient data to prevent epidemics, reduce healthcare cost, improve

timely healthcare
d. Tax Departments: World over, tax authorities are collecting more data, sharing
data among various other government departments and are using this big
data to increase tax revenue, enforce compliance and bring transparency in tax
administration.
In India, with the introduction of GST, an era of 100% digital tax has begun. What
started as monthly online filings moved to e-way bills and online invoice upload in
real-time.
Here are a few examples of how tax administration is using data analytics in India
● GST Department has a full network diagram of each assessee. This is made
possible by correlating information collated from income-tax and customs.
This has made it possible to pinpoint firms who have resorted to fake bill
usage, even if they have resorted to a complex web of firms to route these

Western India Regional Council of The Institute of Chartered Accountants of India 7

Overview of Data Analytics for Finance Professionals

transactions. By Jan 2021, the department had detected over 7000 such cases
of tax evasion via fake bills.
● The income tax department has started Project Insight and a dedicated centre
called the Income Tax Transaction Analysis Centre (INTRAC). This centre uses
data analytics in improving tax administration. Among other things, this project
will use social media data of taxpayers and analyse expenditure patterns. This
Rs. 1000 crore project is aimed at deterring non-compliance and improving tax
collections.

Data Analytics - Advantages

The volumes, complexities and the variety of the data are increasing exponentially at
all levels of the organisation. Analytics is the solution required to get the information
of this ever-growing data, and various benefits can be derived on revenue, expenses,
market share, and reputation.
● Better decision-making. The biggest benefit of using data analytics is the
assistance it can provide in better decision-making capabilities, thus better
enabling key strategic initiatives. Analytics plays an important role in driving
business strategy.
● Marketing and customers. Data analytics assist in identifying and creating
new product and service revenue streams. Marketing and sales groups invest in
analytics helping them to tap new geographies, develop new business models,
and generate higher revenues.

Data Analytics - Challenges

While there are huge benefits, the challenges in the implementation of analytical
solutions are as follows:
● Overall business structure. Analytics is managed by a variety of functions within
a company, and a wide range of functions benefit from analytics. More structure
around coordination and alignment is needed to realize the impact and benefits
of a company’s data throughout the organization. Sometimes a lot of projects
are done in silos by each function.
● Data management is a key barrier. A specific level of data management is
required to make analytical projects successful. The GIGO principle applies
everywhere. To get the best out of the project, proper data mining and data
warehousing solution is required.

8 Western India Regional Council of The Institute of Chartered Accountants of India

 Overview of Data Analytics for Finance Professionals 15 
 
Data Analytics in Audit
Data Analytics in Audit 

 
InIn this chapter, we discuss how data analytics can enhance the quality of 
this chapter, we discuss how data analytics can enhance the quality of the
audit, save time and enable the auditor to gain new insights. Data analytics is not
the audit, save time and enable the auditor to gain new insights. Data 
mandatory as per current auditing standards.
analytics is not mandatory as per current auditing standards.  
Changing audit scenario- Requirement for Fraud reporting
 
Section 143(12) of the Companies Act, 2013 requires the auditor to report frauds/
suspected frauds discovered during the audit to the Central Government (in case the
amount involved is greater than Rs 1 crore) and to the Board/audit committee in case
of frauds of lesser amounts. The auditor has to actively plan the audit procedures
to comply with these reporting requirements. Thus, the expectations from auditors
Section 143(12) of the Companies Act, 2013 requires the auditor to 
have increased significantly. Most large frauds involve senior management and the
report frauds/ suspected frauds discovered during the audit to the 
statutory auditor is not in a position to easily find the fraudulent collusion between
seniorCentral Government (in case the amount involved is greater than Rs 1 
management and third parties. Data analytics can help the auditor to meet
such growing expectations from the audit.
crore) and to the Board/ audit committee in case of frauds of lesser 
amounts. The auditor has to actively plan the audit procedures to 
Western India Regional Council of The Institute of Chartered Accountants of India 9
comply with these reporting requirements. Thus, the expectations 
from auditors have increased significantly. Most large frauds involve 
Overview of Data Analytics for Finance Professionals

The increasing role of ERP systems

Modern integrated computer systems are implemented across the organization.
Financial transactions are generated not just by the accounting team, but automatically
by each operating unit in the company during the course of their day-to-day activities.
Such large enterprise resource planning (ERP) systems are expected to have built-in
checks and controls to ensure the accuracy of the data. For example, it may not be
possible to create an invoice from the ERP system unless there is adequate inventory
in the system for the respective item. ERP systems are also expected to allow granular
segregation of duties and have strong access controls and authorisation. This can
enhance the quality of the data generated by the ERP system and make it more
reliable. If the General Information Technology Controls (GITC) have passed the tests
for design effectiveness and operating effectiveness for the period under audit, and
if the automated controls, automated accounting procedures have been properly
configured and controlled, the auditor can place a high degree of reliance on the
output of such ERP systems.

But at the same time, ERP systems tend to increase the complexity in the transactions
flow. The auditor has to understand the ERP transactions and controls to identify risks
of material misstatements. It may not be possible to have a paper trail of approvals
and authorisations. Controls compromised, especially cases of Management Override
of Controls, cannot be identified easily by sample-based audit.

Data analytics enables the auditor to analyse the complete data set- 100% of the
transactions in a given period. After some initial training, even non-technical persons
can use the data analytics software to visualize the results graphically and identify
anomalies for further investigation.

A word of caution, however, raised by some professional bodies globally, is that Big
Data could result in Auditors becoming less independent and objective (Institute of
Chartered Accountants of England and Wales)

Evolution of CAATs into advanced Data Analytics

Computer Assisted Audit Techniques (CAATs) are used by auditors to query the data
and find patterns or anomalies in it. Specialized software can be used to extract and
sort data, summarise and stratify it. Data Analytics is, of course, “computer-assisted”.
The massive increase in available computing power and better software to handle
Big Data has led to the evolution of CAATs into Data Analytics. Data Analytics goes
much beyond CAATs. Data analytics can harness the organisation’s semi-structured
and unstructured data as well, which is often much bigger than the structured data
of financial accounting systems. Data analytics enables the auditor to make more
effective use of visualization techniques for meeting the audit objectives.

10 Western India Regional Council of The Institute of Chartered Accountants of India

 Overview of Data Analytics for Finance Professionals

A few major types of analyses that can be performed using data analytics software-

● As the number of transactions and size of data increases, it becomes increasingly

difficult to perform traditional procedures such as Ledger Scrutiny. Appropriate
criteria can be defined to identify non-standard entries, considering the concepts
of Ledger Scrutiny for relevant accounts, based on risk assessment.

e.g. -

o Accounts used infrequently

o An unusual combination of accounts

o Debit Cash, Credit Revenue

o Entered and approved by the same person

o Persons passing entries, outside their function

o Unusual time, holidays etc.

o Amounts having round numbers or same ending numbers

o Small value but many entries

o Accounts having significant estimates or period-end adjustments

o Accounts identified with the risk of material misstatement

o Entries passed after the closure of months

● Duplicate analysis and gap analysis: This can be performed on data such as
invoice numbers or bank transactions. The software can easily detect duplicate
invoices or missing dates in the bank statement. It can also be used to find
duplicate payments to vendors.

● Trend analysis: This involves a comparison of current period values with

the corresponding values of one or more previous periods. Using visual
representation, trend analysis can bring out significant patterns in the data.

For example, this chart shows the trend analysis of sales to related parties by a
company in two financial years. The auditor can do trend analysis and plot the
trend line. This can highlight the outliers from the trend line which can be taken
up for further scrutiny.

Western India Regional Council of The Institute of Chartered Accountants of India 11

 Overview of Data Analytics for Finance Professionals 19 
  19 
 

However, when the same data is presented visually in a different 
However, when the same data is presented visually in a different way, it can
way, it can bring out some interesting patterns‐ 
However, when the same data is presented visually in a different 
bring out some interesting patterns-
way, it can bring out some interesting patterns‐ 

 
In this second chart, it appears that in quarter‐end months (June,   
September, December and March), the sale to related parties in 
In this second chart, it appears that in quarter‐end months (June, 
12 the current year is much higher than the corresponding values of 
September, December and March), the sale to related parties in 
Western India Regional Council of The Institute of Chartered Accountants of India

the previous year. In other months of the year, the sales to 
the current year is much higher than the corresponding values of 
 Overview of Data Analytics for Finance Professionals

In this second chart, it appears that in quarter-end months (June, September,

December and March), the sale to related parties in the current year is much
higher than the corresponding values of the previous year. In other months of
the year, the sales to related parties are lower than corresponding values of the
previous year. If this company is required to disclose quarterly financial results,
then this anomaly will have to be taken up for further investigation.

● Ratio analysis: Auditor can analyse key ratios such as gross margin, working
capital turnover, inventory days and compare them against similar ratios in
previous periods. This can bring out anomalies that need further investigation.

● Regression analysis. This is an advanced statistical technique used for data

analysis. A time-series regression uses data from previous periods to predict
the amounts for future periods. Regression analysis helps in the identification
of potential for material misstatement.

Issues/challenges with the usage of Data Analytics in audit

● Current audit standards do not mandate the usage of data analytics during the
various stages of the audit, although data analytics may enable the auditor to
gain new insights into client’s business and speed up the audit tests.

● Identification of non-standard (usually Manual) entries in ERP environments,

which is Fraud Risk, requires proper understanding and technical expertise. Only
proper identification can lead to appropriate conclusions.

● Data availability and quality. A lot of efforts have to be spent to get the data
in a proper shape for analysis. ETL procedures (Extract, Transform and Load) are
followed to obtain “clean” data for analysis. However, ETL procedures are time-
consuming and require manual efforts if the source data has a lot of anomalies.

● Data retention. The data belongs to the client, and not the audit firm. Retaining
such huge data belonging to third parties is expensive and can be viewed as
unnecessary to comply with audit standards.

● Privacy, confidentiality and security issues. Companies are reluctant to share

their ‘complete’ data sets with their auditors for analysis. They fear the potential
leakage of data and loss of competitive advantage. Various governments have
been increasing the privacy laws related to capturing and retaining personal
information. Auditors have to be careful in ensuring compliance with such
regulatory requirements. This can add to the compliance cost.

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Overview of Data Analytics for Finance Professionals

● Availability of trained personnel for data analytics. It is not easy to get trained
people to do insightful data analysis.

● If scripts are to be used to analyse data, the scripts must first be tested for all
test cases and modified till expected results for all test cases give correct results.
Documentation of testing of the scripts for all versions needs to be archived and
maintained.

● Caution on Freeware, especially if scripts are to be executed on the client

environment. They may have malware/trojans.
Data analytics in an audit can provide a lot of value to auditors and their clients. It is
an emerging field and auditors should gear up to harness its potential.

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Overview of Data Analytics for Finance Professionals

 
Data Analytics in Other Finance Functions
Data Analytics in other finance functions 

 
Benchmarking
Most businesses want to measure the performance of their company’s products or
services against their competition, other complementing products or against another
complementing industry. Hence benchmarking with ‘best in class’ or comparison is
  one of the most demanded exercises in the analysis. Tax departments and auditors
have started using benchmarking extensively to compare profitability percentage with
industry-standard or compare the price charged to a sister associate concern with the
market price.

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Overview of Data Analytics for Finance Professionals

Benchmarking can be done from the publicly available data at various levels. E.g. at
the company level; at the aggregated industry level; aggregated at the city or state
level; etc. Source of data for benchmarking could be
● Data are available with the government portals like the GST, Income Tax, Ministry
of company affairs.
● Industry-level studies and research carried by various ministries
● Data filed with the stock exchanges
● Private data mining companies make various types of data available on an
analysable platter. For example, Capitaline, Prowess, Zauba Corp provide
company-level data.
● Shipment data from the customs is available for exports and imports
benchmarking.

Types of Benchmark analysis

● Absolute numbers like Turnover, quantity sold, production capacity, etc.
● Other variables like price charged market cap, etc.
● Ratios like gross margins ratio, working capital ratio, debtor days, creditor days,
price to earnings ratio, etc.

Management Information
Trends (growth, profitability, turnover), comparisons (against budgets, forecasts), ratios
(working capital, gross margin, debt), etc. are the type of information required by the
management to make informed and timely decisions. Benchmarking (discussed above)
is one of the evaluation factors that management uses regularly.
Benchmarking is the comparison with the external environment while the Management
Information is both, evaluation of internal key performance indicators and comparison
with the external environment.
Management Information is like dashboards in a car without which it is not a good
idea to drive although one can easily drive without the same. It shows indicators
of the cashflow like a fuel gauge, the growth like a speedometer and so on. Along
with the dashboard of the car, this is also the rear-view mirror of the car which is as
critical for one to decide whether it is safe to take a turn or change the lane or to
overtake.

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 Overview of Data Analytics for Finance Professionals

Guidelines-
● Creation of most relevant and representative matrices at various levels for the
executives to track.
● Create an intuitive, interactive and easy to understand dashboards and reports
indicating the green shoots and red flags right in time.
● Implement tech automation for faster and accurate information.

Investor and Lender information

Investors and lenders are in the continuous hunt for new opportunities to invest,
track the health of their existing investments, and exit strategies from their matured
existing investments.
Benchmarking and MIS are very relevant from the investors’ standpoint as well.
Investors also use the data from various other sources like
● Credit Information Bureaus for finding out the investees/borrowers’ overall
credibility, timeliness and reliability.
● Private and government players such as CIBIL, Equifax, Experian, CRIF Highmark,
etc.
● Credit scores analysed by the reputed private and government rating agencies
like the CRISIL, CARE, ICRA, FITCH, etc.
These credit bureaus do a lot of analytics and arrive at the readymade credit scores.
These are completely driven by the data from the company, quality of data, external
industry benchmarking and so on. Technology and automated data analytics have
made the process matured and objective oriented over a period. The decisions about
lending or investing also call for a lot of other data apart from the financial data.
There are a lot of data aggregators who keep analysing and make data analytics
available to investors. The data analysed are:
● The character of key managerial personnel
● Past and ongoing litigations (criminal and civil)
● Checking of information worldwide and not just restricted to India.

Tax Function
The role of the tax function is changing rapidly. Typically, it was expected of the
tax department to look at historical and present data to ensure compliance and tax
planning.

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Overview of Data Analytics for Finance Professionals

Now with data analytics tools, the tax department is expected to dig deep into
historical data to find insights and come up with predictive analysis. Some examples:
● Detecting potential errors and non-compliance risks
● Modelling tax implications of certain events like the sale of a business unit
● Predicting tax implications on changes in external or internal conditions
● Interpreting tax laws
● A better understanding of the tax environment

Financial Statement Analytics

Different people do financial analysis for different purposes, but overall three objects
of financial statement analysis: financial position, operating results and cash flow.
Three major financial statements analysed are the Balance Sheet, the Profit & Loss
Account and the Cash Flow Statement. Based on this, the general framework of
financial statement analysis consists of the solvency analysis, profitability analysis,
operational capability analysis and capital structure.
For example:
● The internal department of the company focuses on analysing compliance
with financial policies and standards, capital appreciation, capital maintenance,
allocation of resources effectively, etc.
● Investors focus on analysing the profitability, use of funds, understanding
investment returns, investment risks, etc.
● Creditors focus on analysing solvency of the company, degree of financial
security, etc.
Comprehensive financial statement analysis consists of the following:

Solvency analysis Current Ratio

Quick ratio
Networking capital turnover
Asset-liability ratio
Cash ratio
Interest coverage ratio
Net cash flow to current liability ratio

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 Overview of Data Analytics for Finance Professionals

Net cash flow to total debts ratio

Property ratio
Profitability analysis Sales margin
Sales expense ratio
Return on net worth capital
ROA (return on assets)
ROE (return on equity)
Net profit margin ratio
Cost of goods sold ratio
EBIDTA
Operational capability analysis Accounts receivable turnover days
Accounts receivable turnover rate
Accounts payable turnover days
Accounts payable turnover rate
Inventory turnover days
Inventory turnover ratio
Working capital turnover ratio
Working capital turnover days
Overall business cycle
Capital structure analysis Total debt-equity ratio
Long term debt to equity ratio

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 Overview of Data Analytics for Finance Professionals 28 
 
Tools for data analysis Tools for Data Analysis

 
Data Smoothing/Transformation Tools
Big datasets can be analysed only if the data is made available to the software in
Big datasets can be analysed only if the data is made available to the 
certain cleansed format and ironed up in specific field types and structures. But most
datasets have a lot of issues in terms of the formats, structures, spellings, etc.
software in certain cleansed format and ironed up in specific field types 
The data cleansing and aligning is the most critical part of the data analytics project,
and structures. But most datasets have a lot of issues in terms of the 
but, unfortunately, is less thought of while strategising the project.
formats, structures, spellings, etc.  
Hence, the role of tools called ‘ETL’ i.e, tools to Extract, Transform and Load the data
for further analysis becomes very critical. There is another school of thought which
The data cleansing and aligning is the most critical part of the data 
beliefs in Extract, Load and Transform the data (ELT) tools.
analytics project, but, unfortunately, is less thought of while strategising 
the project.  
Hence, the role of tools called 'ETL' i.e, tools to Extract, Transform and 
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Load the data for further analysis becomes very critical.  There is another 
school of thought which beliefs in Extract, Load and Transform the data 
 Overview of Data Analytics for Finance Professionals

The ETL/ELT tools help to build pipelines through which the data from multiple
sources is brought together, cleansed and stored for analysis in a place called a data
warehouse or data lake (in case of inclusion of unstructured or semi-structured data).
Many software for visualisation and analysis also have ETL/ELT tools inbuilt. However,
there are many specialised tools which can intuitively and easily handle this
cleansing process of the data. These specialised tools also handle the pipeline of the
aggregation of the relevant data from different sources, cleaning it and keeping it
ready for analysis in a data warehouse.
Xplenty, Stitch, ABS Glue, Skyvia etc are some of the examples of the ETL/ELT tools
commonly used for straightening of the data.

Data Analysis Tools

Data analysis tools refer to the software which enables the process of data analysis.
Broadly these tools can be classified as under
a. Spreadsheets
b. Business Intelligence
c. Audit Analytical Tools
d. Programming languages
e. Industry-Specific Tools
For the purpose of this book, we will limit ourselves to the tools that are relevant to
the chartered accountants.

a. Spreadsheets
There are two things that a chartered accountant cannot do without Accounting/
ERP system and spreadsheet. While spreadsheets are great tools for entering
and presenting financial information, they have evolved over a while to provide
sophisticated analytical tools.
There are several spreadsheets tools available but Microsoft Excel (MS Excel) remains
the most common. Few Examples of data analytical formulae being used in excel are:
● VLOOKUP and HLOOKUP remains the most common function to connect
information between two different datasets
● COUNTIF, COUNTIFS, SUMIF and SUMIFS for getting conditional results quickly.

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Overview of Data Analytics for Finance Professionals

● PIVOT tables have evolved to present several ways to summarise data, and to
give answers to many “What”
● Meaningful text manipulation with CONCATENATE, LEFT, MID, RIGHT
● WHATIF analysis to seek Scenarios, Goal Seek, and Data Tables
Google Spreadsheet, Microsoft Access also provide similar functions.

b. Business Intelligence (BI)

BI Tools are used to collect data from various sources. These may be structured data
or unstructured data. The data may include accounting records, images, emails, etc.
After collecting such a large amount of information from diverse sources, these tools
permit running queries to find insights.
These tools also provide several methods to create reports, dashboards and other 31 
data
visualisation for a meaningful presentation of information.
 

 
Pic: example of BI image courtesy https://powerbi.microsoft.com/en-us/
Pic: example of BI image courtesy https://powerbi.microsoft.com/en‐us/ 

 
c. Audit Analytical Tools
c. Audit Analytical Tools 
Talking about industry-specific tools, let us look at the tools created specifically for
the auditors.
Talking about industry‐specific tools, let us look at the tools created 
specifically for the auditors. 
22 Western India Regional Council of The Institute of Chartered Accountants of India
These tools are useful for internal auditors, external auditors, fraud 
investigators, accountants and compliance professionals. 
 Overview of Data Analytics for Finance Professionals

These tools are useful for internal auditors, external auditors, fraud investigators,
accountants and compliance professionals.
These tools, like BI tools, allow multiple data to be collated. The key functionalities
covered are
● Filter and extract
● Merge, match and reconcile
● Track duplicates
● Extract samples
Some of such tools are :

Tool Details
IDEA IDEA is a user-friendly audit analytics tool, commonly used
by chartered accountants.
ACL ACL is a comprehensive solution to control audit, risk and
compliance
TeamMate Analytics TeamMate Analytics is an easy-to-use tool which operates
within MS Excel.

d. Programming Languages
Data scientists use several programming languages in their work. Programming allows
the creation of specific analytical solutions which may not be available in other ready
to use software. Two most popular languages for this purpose are: Python and R
● Python is a general-purpose programming language and since its inception in
1991, it has become very popular. What has made it suitable for data analytics
is the availability of several libraries which make data manipulation powerful.
Some of these are - NumPy: for scientific computation, Pandas: for structured
data with rows and columns
Python can achieve everything that a data analytics needs

o Reading and writing a vast variety of file formats

o Cleaning, normalising and extracting data

o Apply mathematical operations to such data

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Overview of Data Analytics for Finance Professionals

o Connecting data to statistical models

o Summarising data via visualisation

● R Programming is an open-source programming language primarily meant for
data analysis. According to the official web site of R Project, “R is a language
and environment for statistical computing and graphics.”
All libraries in R make data analysis easy. Data cleansing and normalising is a very
lengthy and messy process, which is made easy by several packages available in R.
Example: dplyr, data.table.tidyr, ggplot2
R can be easily learnt by someone without prior coding experience. After a while, one
can even write a new statistical model

e. Industry-Specific Tools
There are also several industry-specific tools available or built into industry-specific
ERPs, such as SAP, Oracle, Microsoft Dynamics, Sage, Tally
A summary of various tools is as follows:

Basic Tools Microsoft Excel, Google Spreadsheet,

Microsoft Access,
Specialised Audit Tools IDEA, ACL,TeamMate
Report Writers Crystal Reports, Business Objects,
Cognos
Server Based My SQL, Microsoft SQL
Business Intelligence Microsoft Power BI, Tableau, QlikView,
Zoho Reports
Programming Languages ‘R’ Programming, Python, SAS
Integrated Analytics Tools within ERP/ SAP, Oracle, Microsoft Dynamics, Sage,
Accounting Applications Tally

Visualisation tools
One of the ways to present the data is by using visualisation tools. The visualisation
makes the data communicate the required message to its reader. It makes a lot of
sense to see the visual trends, charts, graphs than to go through huge chunks of
data tables.

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 Overview of Data Analytics for Finance Professionals

The sales dashboard, CEO’s dashboard, etc are examples of the visualisation of
relevant data.
Following are the common features of the data visualisation tools:
● Multiple databases
Most visualisation tools give options for picking the data from multiple sources
like excel, csv, sql server, my sql, etc. This creates a lot of ease for the users to
pick up the relevant data without much of transformation.
● Relationship building
The visualisation tools come with inbuilt capabilities of establishing relationships
between various data sets. This gives the user ease of making the datasets
interactive and generates a variety of reports from the interconnected datasets.
● Colourful
Visualisation tools allow easy depiction of the information to the reader by
using various colours. It grabs the attention of the reader on the appropriate
information.
● Interactive
The charts have now become dynamic in visualisation tools and they interact as
and when the user hovers over them. They also allow users to drill information
to different dimensions dynamically. The users can drag and drop the items in
their dashboard dynamically.
● Graphical user interface
The visualization tools come with the options to view the data in different forms
like a geographical map, an area chart, a histogram, etc. This helps users to get
more insights from the data and data conveys important messages.
Following are some of the well-accepted list of visualization tools:
● Power Bi
Power Bi is developed by Microsoft. It is the tool born from the combination
of the power query and power pivot, popular analytical tools in later versions
of excel. Power Bi comes with very good visualization support with the ease of
excel (finance professionals are most used to).
Power Bi comes with a mobile application as well. This makes it easy for
publishing the data on the go to the users and interacting with them.

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Overview of Data Analytics for Finance Professionals

This can be a great starting point for the journey into data analytics.
● Tableau
Tableau is a very advanced data visualization tool and one of the early entrants
in the market.
Tableau is better than Power Bi for the professional developers who want to
create complex visualizations for publishing. Tableau is used as a reporting tool
by many corporates and it can integrate easily with the complex databases.
Tableau comparatively has a complex user interface and needs a bit of training
to start operating.
● Zoho Reports
This is a lightweight and completely cloud-based analytics solution. This can be
used in a “pay as you go” model. It is very simple and intuitive. This is made
with the intent to adopt analytics by non-technical persons.

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 37 
  Overview of Data Analytics for Finance Professionals

 
Data Analytics: Current & Future Technology Trends
Data Analytics: Current & Future technology trends 

 
Our smartphones carry all the data needed (and much more) for us to be 
Our smartphones carry all the data needed (and much more) for us to be productive
all day long, from calendars to calculators, home energy notifications to transportation
productive all day long, from calendars to calculators, home energy 
options, and food delivery services to weather forecasts. We take these conveniences
notifications to transportation options, and food delivery services to 
for granted. But when some of them do not work, we feel the absence most.

weather forecasts.  We take these conveniences for granted. But when 
With the increase in social media in terms of posts, images, videos, audios, location
tagging, etc. and with the increase in proactiveness by the business for improving
some of them do not work, we feel the absence most. 
customer experience, customer satisfaction, getting customer feedback; the scale of
big data is also huge advancing into both personal and professional space.
With the increase in social media in terms of posts, images, videos, 
Increase in transaction volumes (including skyrocket volumes in eCommerce), increase
audios, location tagging, etc. and with the increase in proactiveness by 
in frauds, cyber-attacks, machines generating data themselves, it would practically
become impossible for humans to manually analyse the data and reach to conclusions,
the business for improving customer experience, customer satisfaction, 
take timely decisions.
getting customer feedback; the scale of big data is also huge advancing 
into both personal and professional space. 
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Increase in transaction volumes (including skyrocket volumes in 
Overview of Data Analytics for Finance Professionals

In such a situation, how does an enterprise drive business effectively? The answer
lies in harnessing this data challenge via new-age technologies. The world’s biggest
technological breakthroughs are happening in the areas of Big Data, Business
Intelligence, Cloud, Internet of Things, and Artificial Intelligence.

Algorithms
An algorithm is a set of processes and calculations that can create a model from the
data. To create a model, the algorithm first analyzes the data provided, looking for
specific types of patterns or trends. The algorithm uses the results of this analysis over
many iterations to find the optimal parameters for creating the mining model. These
parameters are then applied across the entire data set to extract actionable patterns
and detailed statistics.
All the new-age technologies like Machine learning, Data mining, Statistical models,
Predictive analytics, Internet of Things, etc. use algorithms in some form. There are
various types of algorithms and depending upon the specific requirements either one
or combination of many algorithms are used. Some of the algorithm types are -
● Classification algorithms predict one or more discrete variables, based on the
other attributes in the dataset.
● Regression algorithms predict one or more continuous numeric variables, such
as profit or loss, based on other attributes in the dataset.
● Segmentation algorithms divide data into groups, or clusters, of items that
have similar properties.
● Association algorithms find correlations between different attributes in a
dataset. The most common application of this kind of algorithm is for creating
association rules, which can be used in a market analysis.
● Sequence analysis algorithms summarize frequent sequences or episodes in
data, such as a series of clicks in a web site, or a series of log events preceding
machine maintenance.
Some of the functions in which algorithms are used are as follows:

Related to IT ● Calculate the probability that a server will fail within the
Infrastructure next 6 months.
● Analyze the factors leading to server failure.
● Identify servers that have similar usage characteristics.

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 Overview of Data Analytics for Finance Professionals

Healthcare ● Categorize patient outcomes and explore related factors.

Industry
● Capture and analyze sequences of activities during
outpatient visits, to formulate best practices around
common activities.
● Create patient risk profiles groups based on attributes
such as demographics and behaviours.
Sales and ● Use market analysis and target audience to determine
Marketing product placement.
● Forecast next year’s sales.
● Suggest additional products to a customer for the
purchase.
● Analyze survey data from visitors to an event, to find
which activities or booths were correlated, to plan future
activities.
Risk Analytics ● Flag the customers in a prospective buyers’ list as good
or poor prospects.
● Generate a risk score given demographics.
Website ● Predict visitors on the website given past historical and
Analytics seasonal trends.
● Perform clickstream analysis of a company’s Web site.
● Analyze users by browsing and buying patterns.

Artificial Intelligence (AI) and Machine Learning (ML)

Using ML algorithms, AI solutions can continuously improve based on the information
they collect. AI and ML can analyse massive amounts of data, finding patterns
that a human would never see, and distribute data-driven insights throughout the
organization.
Examples of data analytics using AI and ML are as follows:
● In our daily life, ML and AI play an intrinsic role. Email spam filtering, search
engine results, music and media streaming services, online ads network, social
media feeds, maps navigation while travel, etc. are examples of ML & AI.

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Overview of Data Analytics for Finance Professionals

● Minimise fraud – ML allows for creating auto algorithms that process large data
and help find hidden correlations between user behaviour and the probability
of fraudulent actions. The financial services companies use this technology to
track the social media feeds and the social behaviour of the customers and the
solution predicts fraudulent intentions.

Such analytics can help in reviewing expense and vendor trends. For example,
a specific airline and a hotel are always booked by a particular employee/s can
get a red flag to the finance head and necessary training or actions can be
planned to minimise the fraudulent intentions if any.

● Creditworthiness assessment – ML can help lenders determine the

creditworthiness of potential customers. By analysing past spending behaviour
and patterns, a system could identify how much credit should be extended to
a given customer. This helps in lowering the risk to the financial institution.

● Predicting bad debts – AI helps finance professionals to predict the status of

the collection well in advance. The multivariate analysis of customers data such
as industry type, credit rating, product purchase, salesperson, order approver,
history, etc… will provide the forecast of the probability that the customer will
pay on time, or will be delayed payment or will not pay at all.

This was used effectively by the companies during the pandemic outbreak this
year for planning their cash flow.

● Process Automation – ML, AI clubbed with Robotic process automation helps

to replace and automate repetitive tasks through intelligent process automation.
Some examples of process automation in finance functions are

o Bank Reconciliation – based on the data from the bank, the system can
automatically reconcile the data in the accounting solution. If no one-to-one
entry is found, then it can prompt the possible entries against which the
entry can be reconciled.

o Auto entries – the technology has the capability of getting the info from
the bank accounts and passing the accounting entries automatically related
to bank charges, the collections received, etc…

o Invoice Approval – when the invoice is received from the vendor, based
on the rules and the history of the PO against which the invoice is received,
the approvals can be made automated. This saves a lot of time for the
senior team members.

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 Overview of Data Analytics for Finance Professionals

Internet of Things (IoT)

The Internet of things describes the network of physical objects- “things” - that are
embedded with sensors, software, and other technologies to connect and exchange
data with other devices and systems over the Internet. It enables devices to interact,
collaborate and learn from each other’s experiences just like humans do.

According to Statista (https://www.statista.com/), the number of IoT connected devices

is expected to reach 31 billion by this year-end and to grow to 75 billion by 2025.
These connected devices will produce huge amounts of data, which can be analysed
and a lot of insights can be drawn. With connected devices, an organization will
be able to collect more data than ever before, which can then be mined for trends
offering insight into aspects of the business-like customer purchasing habits and
inventory.

Examples of data analytics using IoT are as follows:

Daily Life Usages

● Traffic Camera Sensors - they sense the traffic conditions and report to the
central server, who can then control the signals based on real-time analytics.
The camera senses the speed of the moving vehicle and an e-challan is sent to
the vehicle owner in case the speed limit is crossed.

● IoT Application wearables - this is most commonly seen and an early adopter
of the technology. Fit-bits and smartwatches are the best examples of the IoT
wearables. The data is transmitted to smartphones and the phones do various
kinds of analytics like heart rate variability, active hours, running and walking
pace, etc. Healthcare industry is also adopting IoT wearables. For example,
glucose monitoring devices.

● Connected home appliances - there are smart appliances available, who would
analyse the surrounding and adjust. Air Conditioners adjust the temperatures
accordingly to the surrounding temperature. Televisions adjust the brightness
based on the light in the surroundings.

Industry-specific
● Smart Farming - A greenhouse farming technique enhances the yield of crops
by controlling environmental parameters. A greenhouse is equipped with IoT
enabled devices for monitoring weather, soil composition, soil moisture levels,
crop health and growth. The data then can be analyzed to determine the best
time to harvest plants and create fertilizer profiles and schedules. It, then,
processes the data and applies a control action.

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Overview of Data Analytics for Finance Professionals

● Smart Cities - This is a concept prevailing getting popular. A smart city is a city
that uses technology to provide services and solve city problems.
One of the examples of the Smart City is Palo Alto, San Francisco - the first
city of its kind. They took a whole new approach to traffic management. They
analysed and found, most cars on the streets go around and round the same
block, in search of parking spots. That’s the main reason for traffic congestion
in the city. They installed sensors at all the parking spots around the city. These
sensors pass the occupancy status of each spot to the cloud. Any number
of applications can consume that data. It can guide the drivers through the
shortest route to an open spot.
● Industrial Security & Safety - Sensors and cameras can be used to monitor
the perimeter of restricted areas and detect trespassers in non-authorized areas.
Upon real-time analysis, alerts can be sent to smart devices.
Small leaks of hazardous chemicals or pressure build-ups can be identified and
fixed before they become serious problems. Identifying and fixing leaks of fluids
reduces corrosion and minimizes maintenance costs.
IoT-enabled detection systems are also used to monitor chemical factories,
nuclear facilities, and mining operations.

Finance function
The data is analysed and it saves a lot of costs, breakages, enhancements in the
supply chain, maintenance improvements, etc. Few examples are:
● Real-time production monitoring data
● Automated inventory monitoring and tracking data
● Asset monitoring data (equipment, products, etc.)
● Predictive maintenance data
● Fleet monitoring data (monitoring vehicles and other mobile assets)

Big Data Analytics with data mining

Big data after being stored in a data lake, it can be used for advanced analytics for
the following:
● Data mining - sifts through data in search of patterns and relationships
● Predictive analytics - builds models to forecast customer and people behaviour
and other future analytics

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 Overview of Data Analytics for Finance Professionals

● Machine learning - taps algorithms to analyse large data sets

● Deep learning - more advanced offshoot of machine learning
● Text mining - sifts through unstructured text data identifying concepts, patterns,
topics, keywords and other attributes

Examples of big data analytics

Big data comes from myriad different sources, such as business transaction systems,
customer records, internet clickstream logs, mobile applications, social networks,
machine-generated data, real-time data sensors and many others.
Customer insights - using customer records, various analytics that can be done could
be -
● Comparative analysis - user behaviour metrics, real-time customer engagement
comparing the company’s products and services, brand authority compared with
the competition, etc.
● Social media listening - analysing customer feedback on social media about
the company’s products and services going beyond general surveys and polls,
identifying the target audience, marketing campaign planning, etc.
● Marketing analysis - analysing the success of the promotion of new products
and services, more information to be more innovative and informed, etc.
● Customer satisfaction & sentiment analysis - analysis of the customers’ feeling
of the company brand, innovative ideas to preserve brand loyalty, analysis of
customer service levels, improvement of customer service, etc.
Real-time Stock market insights - ML is changing trade and investments. Instead of
simply analyzing stock prices, big data can take into account political and social trends
that may affect the stock market. ML monitors trends in real-time, allowing analysts
to compile and evaluate the appropriate data and make smart decisions.

Blockchain
A blockchain is a distributed database that hosts a continuously growing number of
records. The database stores record in blocks rather than collating them in a single
file. Each block is then ‘chained’ to the next block in linear, chronological order using
a cryptographic signature; as a result, records cannot be revised, and any attempted
changes are visible to all participants.
Although blockchain technology is the foundation for a cryptocurrency (such as
bitcoin), there are a variety of financial and accounting applications beyond the realm

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Overview of Data Analytics for Finance Professionals

of cryptocurrency. With its unalterable blocks and secured record-keeping capabilities,

blockchain can offer a valuable and trustworthy forensic trail if quality issues arise
after the delivery of an item.
● Healthcare companies can analyse products to identify signs of tampering or
careless handling,
● Grocery stores can analyse and identify sources of contamination quickly in
event of a recall,
● Forensic data is readily available and transparent, eliminating the need to
manually sift through paper-based records. The analysis is real-time.
● Payment processing and cross-border money transfers not only eliminates the
need for third-party intermediaries but also reduces the costs of processing
money transfer, increases efficiency and improve security. [Arab Jordan
Investment bank is using this].
● Payment dispute resolution
● Improved regulatory compliance

Future of Data Analytics using new-age technologies

Data Analytics is getting used for a long time now, but, with the new-age
technologies, the analytics will change dramatically. Given the business dynamics,
volatility and the volume, there is a lot the future will unwrap in terms of usage of
technology, upgradation of personnel skills and the advent of new analytics. Some of
the future analytics could be as follows:

Product and Sales Recommendations

Although there are various applications of automated financial product
recommendation existing even today, some of them involve rule-based systems
(instead of machine learning) where data still goes through manual resources to be
able to recommend trades or investments to customers.
● The future will see ML & AI technologies being used by insurance
recommendation sites to suggest customers a particular home or vehicle
insurance policy.
● The future will see the car suggesting the particular route to the owner of the
car among the various routes to save on insurance premium and claims.
● The future might also see the digital assistants suggesting changes in the
portfolio

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 Overview of Data Analytics for Finance Professionals

● The future might see an offering of ML-based objective & reliable advisory via
personalised apps and personal digital assistants.

Enhanced Security
Data security in banking, finance and other individual intensive industries is a critically
important area. With all the information available online, companies find it increasingly
challenging to keep all the usernames, passwords and security questions safe.
The future will see a dramatic shift in security, where passwords, usernames and
security questions may no longer be the norm of user security. ML applications
will transform future security within the industry to adopt voice recognition, facial
recognition or similar biometric data.

Customer Sentiment Analysis

It is a well-known fact that human factors drive the stock market, and customer
sentiments are the most important factor.
● ML can be of great help to finance companies when it comes to analysing
current market trends, predicting the change and social media usage of every
customer. Businesses can learn from the financial activity of the customers
continuously and position their products accordingly.
● Customer sentiment analysis can also complement current information on
different types of commercial and economic developments.

Automated Data Analytics

Amount of data continues to grow and not every data that comes in is useful for
business. So, businesses have to extract the useful ones and they spend a lot of time,
money and resources doing this.
● Data analysis automation will scan the useful data to be analysed. It will lead
to improved efficiency and effectiveness of data, enabling companies to get
insights faster.
● Data analytics solutions will be more advanced and user-friendly. This will help
in generating the reports automatically without much skill. It will also be much
easier for the data scientist to carry out complex analytical operations.
● Fast data allows for processing in real-time streams. Because of this stream
processing, data can be analyzed promptly, within as little as just one
millisecond. This would bring more value to organizations that will be able to
make business decisions and take actions immediately when data arrives.

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Overview of Data Analytics for Finance Professionals

Internet of Behaviour (IoB)

After IoT, then the next upcoming technology trend is IoB. IoB is about using data
to change behaviours. With an increase in technologies that gather the ‘digital dust’
of daily life; the data that spans the digital world and physical world; the information
can be used to change behaviours.
The IoB can gather, combine and process data from many sources including
commercial customer data, social media, public domain deployments of facial
recognition, and location tracking, wearable devices distributing data, etc.
● For commercial vehicles, telematics can monitor driving behaviour, from sudden
braking to aggressive turns. Companies can use the data for driver performance,
routing and safety.
● The same wearables that health insurance companies use to track physical
activities to reduce premiums could also be used to monitor grocery purchases;
too many unhealthy purchases could also increase premiums.

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 Overview of Data Analytics for Finance Professionals

50 
Commonly used Statistical Models
 
for Practical Data Analytics
Commonly used statistical models for practical data analytics 

Understanding the statistical models and concepts is required for data analytics. One  
of the very well-known and important concepts of statistics is ‘Measure of central
Understanding the statistical models and concepts is required for data 
tendency’. Although this is a very basic model, it helps to create a lot of data models
analytics.   One of the very well‐known and important concepts of 
and representative trends.

statistics is ‘Measure of central tendency’. Although this is a very basic 
The measure of central tendency helps to derive a representative from a population
which describes the population very closely. So we can say that a measure of central
model, it helps to create a lot of data models and representative trends.  
tendency attempts to describe a dataset by a single value. This single value is the
central position within the data set.
The measure of central tendency helps to derive a representative from a 
population which describes the population very closely. So we can say 
that a measure of central tendency attempts to describe a dataset by a 
single value. This single value is the central position within the data set. 
Western India Regional Council of The Institute of Chartered Accountants of India 37

Some of these measures are described below: 
Overview of Data Analytics for Finance Professionals

Some of these measures are described below:

Mean
Arithmetic Mean helps a lot in the data analysis. The formula for deriving arithmetic
mean is to ‘divide the sum of all the observations with the number of observations’.
Example:
It is important for the auditor to find out the average monthly sales to understand
the size and scale of the company. This average is also called the “mean”.

Month Sales in INR Month Sales in INR

Jan 1004050 Jul 1200561
Feb 1100506 Aug 1109281
Mar 1234055 Sep 1009821
Apr 988569 Oct 1057211
May 1026789 Nov 1094781
Jun 1086410 Dec 1209815
Total 13121849
Total Months 12
Mean 1093487

To find the mean, add the monthly total sales and divide by the total no of months
in the data

Median
Median is the middle number when the data is sorted in ascending or descending
order.
Example:
As explained above, for getting a better representative of the monthly sales from the
total annual sales of a company, we use the “mean”. If the sales are very sporadic due
to the seasonality, (e.g. Sales for Diwali (Oct) and Christmas (Dec) for crackers are five
times that of a normal month), then we should use median

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 Overview of Data Analytics for Finance Professionals

Sales are organised in the ascending order. Sales from the exact middle of the
list will be picked up as the representative of the monthly sales. If the number of
observations is an even number, then the average of the middle two observations in
the sorted dataset is taken as the median

Month Sales in INR

Jul 369021
Jan 400102
Jun 486410
Apr 560914
Aug 580237
Nov 594781
May 626789
Feb 640910
Mar 678000
Sep 709821
Dec 1109281
Oct 1200561
Total 7956827

In this case, since the total observations are 12 (even number), the middle 2
observations are highlighted in the above table. Average of the two highlighted
observations is 610785.

Mode
Most commonly occurring number in the observation is called mode. There can be
one or more than one mode in the data set.
Example:
In a service complex, several companies are working with a varying number of
employees. The table below shows the number of employees in each company

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Overview of Data Analytics for Finance Professionals

Company No. of
Employees
A 5
B 6
C 8
D 10
E 5
F 7
G 10
H 12
I 9
J 11
K 1
L 10
Total 94

The mode in the above case would be 10 as it occurs in most of the observations
in the dataset. This represents that most companies in the service complex have 10
employees.
Mean, Mode or Median?
● If the values are close to each other, ‘mean’ works fine as a representation of
the data.
● If the values are too different from one another, ‘median’ will be a better
representation of the data.
● If the dataset has many repetitive values, ‘mode’ suits best to find the most
representative sample.

Standard Deviation
The standard deviation is the statistic that measures the dispersion of the dataset
relative to its mean. If the data points are further from the mean, there is a higher
deviation from the data set. In stock market parlance - A volatile stock has a high
standard deviation, while the deviation of a stable blue-chip stock is usually rather
low.

40 Western India Regional Council of The Institute of Chartered Accountants of India

 55 
 
Overview of Data Analytics for Finance Professionals

Example
ACorrelation helps in finding relationships between two or more things. For 
standard deviation is a useful tool in investing and trading strategies as it helps
measure market and security volatility and predict performance trends. An index fund
data analysis, it is very critical to find out the relationship between certain 
is likely to have a low standard deviation versus its benchmark index, as the fund’s
parameters. For e.g. stock market changes vis‐a‐vis a particular stock or 
goal is to replicate the index. On the other hand, one can expect aggressive growth
funds to have a high standard deviation from relative stock indices, as their portfolio
the relation of change in the gold rates vis‐a‐vis stock market indices.  
managers make aggressive bets to generate higher-than-average returns.

The correlation can be positive, negative or no relationship.  
Correlation
Correlation helps in finding relationships between two or more things. For data
● Positive correlation ‐ the variable changes in line with the other e.g. 
analysis, it is very critical to find out the relationship between certain parameters. For
e.g. stockadvertising cost vis‐a‐vis sales.  
market changes vis-a-vis a particular stock or the relation of change in the
gold rates vis-a-vis stock market indices.
● Negative correlation ‐ the variable changes in the opposite direction 
The correlation can be positive, negative or no relationship.
of the other e.g. reduction in turnaround time of delivery resulting 
● Positive correlation - the variable changes in line with the other e.g. advertising
in an increase in sales. 
cost vis-a-vis sales.
● ●Negative
No relationship ‐ the variables do not have any relationship e.g. 
correlation - the variable changes in the opposite direction of the other
e.g.advertisement cost and delivery turnaround time  
reduction in turnaround time of delivery resulting in an increase in sales.
● No relationship - the variables do not have any relationship e.g. advertisement
This correlation between the data sets can be established by the 
cost and delivery turnaround time
graphical representation.  
This correlation between the data sets can be established by the graphical
representation.
Example: 
Example:

Plotting a positive correlation: Increase in the number of people in an 
Plotting a positive correlation: Increase in the number of people in an office is linked
with the increase in the electricity bill.
office is linked with the increase in the electricity bill. 

 
Plotting a negative correlation: Decrease in climatic temperature results 
in an increase in sales of the woollen garments. 
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Overview of Data Analytics for Finance Professionals

Plotting a negative correlation: Decrease in climatic temperature results in an increase

in sales of the woollen garments.

  

   
No Correlation ‐ The relationship between the two variables d
NoNo Correlation ‐ The relationship between the two variables does
Correlation - The relationship between the two variables does not exist. Like the
exist. Like the population of a country and its climatic temperatur
exist. Like the population of a country and its climatic tempera
population of a country and its climatic temperature.

   
   
 
 

Regression is a further extension of the correlation.  In a relations
42Regression is a further extension of the correlation.  In a relati
there is one variable dependent on an independent variable.  
Western India Regional Council of The Institute of Chartered Accountants of India

there is one variable dependent on an independent variable.  
 Overview of Data Analytics for Finance Professionals

Regression
Regression is a further extension of the correlation. In a relationship, there is one
variable dependent on an independent variable. Independent variable is one that
can be changed by choice, e.g. no. of salespersons. The dependent variable would
be e.g. sales (sales may increase with the increase in the number of salespersons).
Regression is a technique used for calculating the impact of an independent variable
on the dependent variable.
Regression analysis is one of the foundation stones of predictive analysis. This is one
of the tools to do ‘What if’ analysis, ‘scenario analysis’ and so on useful for decision
making.

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 Overview of Data Analytics for Finance Professionals
57 
  Data Analytics Usage
Data Analytics Usage 

Professional Firms
It is observed that small professional firms continue to rely heavily on 
It is observed that small professional firms continue to rely heavily on Microsoft Excel
and to some extent, inbuilt tools within accounting software/ERP systems for data
Microsoft Excel and to some extent, inbuilt tools within accounting 
analytics. The use of data analytics is also limited to audit functions.
software / ERP systems for data analytics. The use of data analytics is also 
Whereas large accounting/consulting firms are investing heavily in adopting data
limited to audit functions. 
analytics, artificial intelligence and machine learning. Such technology is being used

Whereas large accounting / consulting firms are investing heavily in 
adopting data analytics, artificial intelligence and machine learning. Such 
44 Western India Regional Council of The Institute of Chartered Accountants of India
technology is being used across tax, auditing, consulting and risk 
 Overview of Data Analytics for Finance Professionals

across tax, auditing, consulting and risk management. For example, A large audit firm
has an AI-enabled document review platform that can review and extract relevant
information from contracts, reducing man-hours spent on this process by up to 50%.
While large firms are creating their own platforms for effective data analytics, small
and medium firms have access to off-the-shelf solutions. As these tools and software
become more affordable, tech-savvy chartered accountants have started using them
to have an edge.
With the accounting moving in-line with the business process by implementation of
the ERP systems, as the focus on Corporate and IT Governance increases, the issues
around accuracy should go down. Also, the skill around checks and balances which
was considered a premium one for the accountants could now be taken over by the
computer. This makes analytical skills on the available data, a significant one for the
professionals to acquire, so as to differentiate themself from the competition.
There is a growth in the number of businesses using data analytics, in the same way,
an auditor would do. With the help of such tools, businesses can get more insights
into risk and performance. In such cases, they would have greater expectations from
their auditors for advice on potential risks. Without the use of data analytics tools, it
will be difficult for the auditor to meet client expectations.
Use of data analytics is very necessary to enhance audit quality, find potential risks
and communicate audit findings more effectively.
Small firms can leverage data analytics to generate insights from accounting data and
provide value-added services to enhance their revenue.

Finance professionals in the Industry

Finance function and finance professionals have always been the custodian and
curator of financial data. Whether it is bringing the data together or distributing the
information, many reporting processes have been involving a great deal of effort of
information assembly, validation, and reporting. The activity has become mundane
and never-ending over time.
But, with the advent of new-age technologies, regular reporting can become
comparatively easy. Finance professionals can use data-analytics and report a lot more
insights. Some of the finance professionals using data-analytics with the help of new-
age technologies have taken a completely new role in the organisation.

Strategy
The finance professional is now seen as a strategist. The data-analytics allow finance
to track Key Performance Indicators (KPIs), monitor ongoing results and performance,

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Overview of Data Analytics for Finance Professionals

and inform the business or make recommendations to the business. Finance

professionals can bridge the gap between strategic and operational decision-making
with analytics. It’s the difference between ‘managing the business’ (post-mortem) and
‘running the business’ (proactive and future insights).

● Finance professionals can exercise more ‘centralized control of operational

business decision’ making. The analytics can help finance function to help
businesses making decisions such as:

○ the price point should be used for this customer on this day.

○ the inventory products should be pulled forward or out of the supply chain.

● Assisting organisations in setting ‘financial goals’ of the organisation. Based

on the trend analysis using forecasting models, gives insights into cash flow,
profits for the next 15 to 24 months. The business can make informed decisions
making sure to minimise cash strain.

Risk Management
Strategic ‘risk management’ of the organisation. Analytics are used to mitigate
various risks not only in real-time. Predictive analytical technologies can be used to
predict the risks and avoid in advance. Some of the examples are -

● Prevent repetitive losses - If the claim of the expense of the similar nature/
item is being done, again and again, the analytics can show a red flag. The root
cause of the claim can be identified and solved.

● Monitor performance - Analytics will be able to hold units or departments

accountable for exceeding or failing to meet goals, recognize red flags that may
indicate something needs to be changed, or discover why a business strategy
isn’t working out as well as planned

● Improve reporting - With in-depth data and analytics, exceptional reporting

can be generated. Data will help to identify actionable, easy for anyone to
understand, and will be able to support any mitigation strategy.

● Forecasting and decision making - Without effective analytics, it’s difficult for
one to learn from the past or prepare for the future. Analytics comprehends
what went wrong historically and allows one to prepare for future potential
incidents, thus assisting to mitigate risks in advance.

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 Overview of Data Analytics for Finance Professionals

Other Functions
Finance-supported analytics can drive value outside the finance function like

● procurement function assisting in spend analysis and vendor management,

vendor performance analysis.

● business units for margin-erosion analysis, pricing analytics, customer

profitability alignment.

● sales and marketing function helping in price point, revenue leakage, revenue
drivers, demand/price elasticity, customer retention & churn analysis.

● the supply chain for sales, finance and requirement linked forecasting, new
product introduction profitability.

● information technology function for decisions on technology investment

planning and prioritization.

A Case Study
Leading telecom finance professional with the help of analytics helped the company
(outside the finance function), targeting the company’s most profitable customers to
achieve:

● High Net-worth customers specific telecom plans: To calculate the lifetime

value of individual customers and develop scenario models for discounts,
marketing, and rewards to guide interactions with the customer.

● Higher profitability to the company: deploying analytical solutions to front-line

employees and marketers to derive individual customer profitability from each
transaction, in real-time. The sales team was able to change plans in real-time
giving them the view of the benefits to the customer and profitability to the
company over the long term.

Finally A Word of Caution

The new-age technology like Artificial Intelligence (AI), Machine Learning (ML) and
Deep Learning (DL) are the backbones of most of the aforesaid analytic technologies.
There will naturally be a huge reliance on the outputs provided by these tools by
auditors and management. There should always be a question that should prompt
the users of the analytics “What is the assurance that the outputs are complete
and accurate?”

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Overview of Data Analytics for Finance Professionals

AI and ML both are like the brain of a child. It learns. It also learns incorrect things. It
also unlearns what it knew. It may develop biases. Testing of these technologies is a
very different ball-game, not at all as straightforward as building a laundry list of Test
Cases and confirming outputs. There may be unstructured questions asked, to which
answers will pop-up. Should these answers be accepted at face value?
As an example, per the applicable BASEL norms for determining Capital Adequacy for
a bank, Data Mining tools are run on the Data Warehouse to discover hidden trends.
If the outputs are incorrect, so also will be the determination of Capital Adequacy.
Chartered Accountants are trained to be sceptical. Take the help of experts, if required
(SA 620 – Using the work of Auditors’ Expert).

48 Western India Regional Council of The Institute of Chartered Accountants of India